Swiggy pulls out of cloud kitchen business, sells vertical to Kitchens@ in share swap deal

Food delivery major Swiggy has sold off its cloud kitchen business to Kitchens@ as the SoftBank-backed company looks to dispose of nonviable business verticals.

Cloud kitchen operator Kitchens@ acquired Swiggy's Access Kitchens business through a share swap deal wherein Swiggy becomes a stakeholder in Kitchens@.

Swiggy has been redirecting its focus to better unit economics and profitability as it eyes public listing in coming years. The company sacked 380 employees and shut down Meat marketplace in January.

Interestingly, Zomato had shut down its cloud-kitchen program Zomato Infrastructure Services (ZIS) in 2018 and instead, invested in Loyal Hospitality, the parent of Kitchens@, for an exclusive partnership. However, Zomato exited the company within two years.

Swiggy ventured into the cloud kitchen business with the launch of Swiggy Access in 2O17. The program allowed restaurant partners to establish kitchen spaces in neighbourhoods where they do not currently operate, with the goal of offering more variety and shortening delivery times for consumers.

“These "delivery-only" kitchen spaces align with Kitchens@'s own cloud kitchen model. By leveraging Swiggy's analysis of local demand and selection of high-performing partners, Kitchens@ can diversify food options and meet customers' needs in specific areas,” an official statement on the acquisition said.

"The addition of Swiggy's Access kitchens will bolster the reach and operations of Kitchens@ in four cities across 52 locations and 700+ kitchens, providing customers with more convenient and efficient food delivery options," said Junaiz Kizhakkayil, Founder and CEO of Kitchens@.

While attributing the layoffs to the challenging macroeconomic conditions, Swiggy’s Founder and CEO Sriharsha Majety had hinted at further cost cuts to meet its profitability goals.

“The growth rate for food delivery has slowed down versus our projections ( along with many peer companies globally ). This meant that we needed to revisit our overall indirect costs to hit our profitability goals. While we'd already initiated actions on other indirect costs like infrastructure, office/facilities, etc., we needed to right-size our overall personnel costs also in line with the projections for the future. Our over hiring is a case of poor judgement, and I should've done better here,” he had written in an internal email sent to employees during the time of layoffs in January.

He said the Meat marketplace failed to hit product-market fit despite iterations. "While we continue to be fully committed to exploring new business opportunities, we have also taken a harder look at some of our existing new verticals. Effective very soon, we will be shutting down our Meat marketplace. While the team has done exceptionally well with solid inputs, we haven't hit product market fit here despite our iterations," the CEO had noted in the email.

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